Dealing with the Inventory Risk

Market makers have to continuously set bid and ask quotes for the stocks they have under consideration. Hence they face a complex optimization problem in which their return, based on the bid-ask spread they quote and the frequency they indeed provide liquidity, is challenged by the price risk they bear due to their inventory. In this paper, we provide optimal bid and ask quotes and closed-form approximations are derived using spectral arguments.

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Year of publication:	2011
Authors:	Guéant, Olivier ; Lehalle, Charles-Albert ; Tapia, Joaquin Fernandez
Institutions:	Université Paris-Dauphine (Paris IX)
Subject:	Trading process \| Stocks \| Risk \| Inventory

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Extent:	application/pdf
Series:	Economics Papers from University Paris Dauphine.
Type of publication:	Book / Working Paper
Notes:	Published in Cahiers de la Chaire Finance et Développement Durable, 2011
Classification:	G1 - General Financial Markets
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010706651